Large-cap firms perform better in 2014

All major sectors, except for banks, generated positive returns last year riding on the back of price gains in large cap companies.

Cement, telecoms, food and allied, and pharma performed well for the gains in share prices of multinational companies, LankaBangla Securities said in its yearly review.

The cement sector generated the highest gain of 114.2 percent to stand at Tk 19,916.64 crore in terms of market capitalisation last year, compared to the previous year. It was led by Lafarge Surma’s rally, which posted a 267.2 percent gain in terms of price.

In April 2014, the news of the $43 billion merger of the world’s two biggest cement makers, Lafarge and Holcim, gave a positive vive to investors, the review said.

In the local market, Lafarge’s net profit in nine months grew 48.22 percent at the end of September 2014 backed by a 76.35 percent fall in financial costs, the stockbroker said.

As of September 2014, the company’s debt was Tk 309.40 crore, which was Tk 436.90 crore at the end of the third quarter of 2013. Since Lafarge turned profitable in 2011, it is repaying its debt gradually that is leading to a decline in its financial costs.

In addition, Lafarge declared a 5 percent interim dividend for the first time in June 2014.

Market capitalisation for telecoms advanced 70.7 percent to Tk 50,616.66 crore as Grameenphone, the largest capitalised stock in the sector, accelerated 80.1 percent in price gains last year, according to LankaBangla.

This was backed by a healthy 48.6 percent growth in profit in the first nine months of last year.

Grameenphone had performed well last year as the company’s market share in terms of subscription increased to 42.44 percent in September 2014 from 41.6 percent in the same month a year ago, with its total subscriber base reaching 5.03 crore.

In the first nine months of last year, Grameenphone’s EBITDA (earnings before interest, taxes, depreciation and amortisation) margin increased by 3.67 percent year-on-year.

EBITDA is an indicator of a company’s financial performance and it is an approximate measure of a company’s operating cash flow based on data from the company’s income statement.

The company’s revenue from data services exhibited a staggering 72 percent growth year-on-year in the third quarter of 2014, contributing 5.2 percent to its total revenue.

Moreover, an increase in its corporate tax rate had depressed earnings in 2013, which did not occur in 2014, thereby amplifying profit growth last year, the stockbroker said.

The food and allied sector continued its rally for the second year with a 56.6 percent gain and stood at Tk 21,090.19 crore last year.

Two heavyweights — Olympic Industries and British American Tobacco Bangladesh — led the rally, gaining 108.6 percent and 65.3 percent respectively, it said.

An improved margin, higher consumption of fast-moving consumer goods (FMCG) and revenue growth of these companies led the rally in the sector.

For instance, prices of core raw materials of Olympic like sugar, wheat and palm oil went down, which helped the company expand its margin.

In addition, falling inflation had boosted consumption of such FMCG, as disposable income increased, LankaBangla said.

Most of the leading pharma companies registered revenue growth and margin expansion last year, according to LankaBangla.

Although the pharma industry grew at a single digit rate in fiscal 2013-14, leading pharma companies like Renata and Square Pharma saw double digit growth, it said.

Among the major sectors, banks lost 3.5 percent of market cap last year. Some major banks such as Islami Bank, Prime Bank and Pubali Bank lost 26 percent, 24 percent and 18 percent.

“The best performing companies came from the manufacturing sector. Stocks of healthcare, consumer goods, telecom, and construction and building materials saw the highest returns last year,” the stockbroker said.

“We are expecting the manufacturing companies to drive the market movement in 2015, like in the previous year,” said Md Mahfuzur Rahman, head of research at LankaBangla Securities.

Pharma and FMCG companies will observe higher demand for their products, if low inflation prevails in the country, Rahman added.

Construction and building material companies may overcome sluggishness with increasing government expenditure in development projects and higher growth in remittance, he said.

“Simultaneously, gross profit margins will improve significantly due to falling commodity and crude oil prices. Many of the raw materials for manufacturing companies are derivatives of oil,” he said.

The declining interest rate will also reduce the financing costs of highly levered companies, he said.

“Seemingly, manufacturing companies’ market cap will go up as they improve their fundamentals in 2015.”

Northern Jute Manufacturing Company posted the highest return of 392 percent among all the listed stocks in Dhaka Stock Exchange last year followed by Altex Industries with 318 percent, Lafarge Surma Cement 267 percent, Summit Alliance Port 174 percent and ACI 173 percent.

Around 157 companies generated negative returns last year. Tallu Spinning Mills was the worst performer at the DSE with a fall of 60.1 percent, followed by Fine Foods with 55.04 percent and Delta Spinning Mills 54.35 percent.

The DSEX, the key price index of the premier bourse, gained around 14 percent to close the year at 4,864.96 points. The average daily trade stood at around Tk 500 crore in 2014, up 25 percent from the previous year.